Reference no: EM132775679

Computer Solutions Corporation manufactures and sells various high-tech office automation products. Two divisions of Office Products Inc. are the Computer Chip Division and the Computer Division. The Computer Chip Division manufactures one product, a "super chip," that can be used by both the Computer Division and other external customers.

The following information is available on this month's operations in the Computer Chip Division:

Selling price per chip $50

Variable costs per chip $20

Fixed production costs $60,000

Fixed SG&A costs $90,000

Monthly capacity 10,000 chips
External sales 6,000 chips
Internal sales 0 chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead pays $45 to an external supplier for the 4,000 chips it needs each month.

Problem 1: Assume, for this question only, that the Computer Chip Division is selling all that it can produce to external buyers for $50 per unit. How would overall corporate profits be affected if it sells 4,000 units to the Computer Division at $45? (Assume that the Computer Division can purchase the super chip from an outside supplier for $45.)

Option 1: $90,000 increase
Option 2: $20,000 increase
Option 3: $20,000 decrease
Option 4: no effect